# For the Bayer Company, the average age of accounts receivable is 60 days, the average age of...

## Question:

For the Bayer Company, the average age of accounts receivable is 60 days, the average age of accounts payable is 45 days, and the average age of inventory is 72 days. Assuming a 365-day year, what is the length of the firm's cash conversion cycle?

## Cash Conversion Cycle:

The cash operating cycle is operating cycle less creditors payment period, and the cash conversion cycle calculates how much time the company needs to sell its inventory, how much time it takes to collect receivables, and how much time it has to pay its bills without incurring penalties.

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The total time taken from purchasing and converting the raw material into finished goods, and selling to the customers and collection of cash from...

Operating Cycle & Cash Cycle: Definition & Calculations

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Chapter 17 / Lesson 2
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How can a business owner know how long it takes to make money on purchased supplies or products? In this lesson, we'll examine the two different methods for calculating the length of time it takes to make a profit: the operating cycle and the cash conversion cycle.